A corporation is a legal entity created under the laws of a state that has liabilities, benefits and protections that are separate and distinct from the personal assets of the individual owner(s) of the corporation. In most situations, a corporation is legally treated as if it were an actual person. A corporation can own assets of all types, incur liabilities and debts, take action and be liable for it’s actions in the same way as an real person.
The single most important feature of a corporation is that it can have limited liability, protecting personal assets of owners.
This limited liability feature means that all assets of the corporation are accessible to creditors to pay debts to the full extent of the assets owned or held in the corporation. This provides insulation and protection for the personal assets of owner(s) of the corporation in the event of a corporate liability, bankruptcy or other adverse event or legal proceeding. The personal assets held outside the corporate entity in an individual estate can be shielded from creditors and from being seized, attached or forfeited to creditors seeking monetary value from the corporation.
Follow the Business Structuring link to learn more about corporation formation types. These corporate structures can be used by an individual, small or large groups, related or unrelated people or corporations, partners, or for a variety of charitable or other purposes. A thorough examination of the needs and appropriate goals of the individual business situation, the industry involved, and the jurisdiction(s) where the corporation is expected to operate, is of the utmost importance to properly identify the most beneficial corporate entity selection. Additionally, many distinct corporate tax planning strategies and solutions are unique to each type of corporation, and which vary significantly between both jurisdictions and industries.
A natural person’s personally held assets are owned separate from and outside of the corporation. In order for the “corporate shield” to effectively insulate an individual from personal liability for corporate debts, a number of steps must be taken to ensure that the benefits of the corporate formation selected are properly created, maintained, and terminated (when appropriate). The corporation is created under the applicable state laws, but Federal as well as possible International reporting, registration, tax, and other requirements must be maintained during the life of the corporation in order to secure the personal asset protection benefits of the limited liability corporation. Also, additional legal documents must be created in conjunction with the ownership and operations or a corporation. Some examples include Buy-Sell Agreements, stockholder agreements, and many different types of legal contracts.
If the appropriate legal, accounting, financial reporting, record keeping and other requirements imposed on corporations are not done in the proper and timely manner, the legal separation and insulation of corporate liabilities from the owner’s personal assets can be destroyed. This may be referred to as, “breach of the corporate veil”, and means that creditors or others can legally seek to claim for themselves the personal assets of the owner(s) of the corporation, even though these assets are not, in fact, owned by the corporation itself. This can occur in cases where the corporation is subject to criminal or civil liability, bankruptcy, fraud, or other adversarial legal proceedings against the corporation. If the proper steps are not taken to protect the corporation and insulate the owner(s) assets from corporate liability, creditors may be able to seek to seize some or all of the personal assets of the owners or officers of a corporation.
Smith & Shapiro also offers corporate Consulting Services, which are tailored to the individual needs of a person, business or combination of entities.
Contact Smith & Shapiro today to properly structure your corporate entity. To schedule an appointment please call (702) 318-5033 or submit our online contact form. Smith & Shapiro is conveniently located in Las Vegas and Henderson, Nevada. We are open Monday – Friday, 8:00am – 5:00pm.